It was a brutal year for mega-cap tech stocks across the board. But 2022 was especially rough for Amazon.
Shares of the e-retailer are wrapping up their worst year since the dot-com crash. The stock has tumbled 51% in 2022, marking the biggest decline since 2000, when it plunged 80%. Only Tesla, down 68%, and Meta, off 66%, have had a worse year among the most valuable tech companies.
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Amazon’s market cap has shrunk to about $834 billion from $1.7 trillion to start the year. The company fell out of the trillion-dollar club last month.
Much of Amazon’s misfortunes are tied to the economy and macro environment. Soaring inflation and rising interest rates have pushed investors away from growth and into companies with high profit margins, consistent cash flow and high dividend yields.
But Amazon investors have had other reasons to exit the stock. The company is contending with slowing sales, as predictions of a sustained post-Covid e-commerce boom didn’t pan out. At the height of the pandemic, consumers came to depend on online retailers like Amazon for goods ranging from toilet paper and face masks to patio furniture. That drove Amazon’s stock to record highs as sales soared.
As the economy reopened, consumers gradually returned to shopping in stores and spending on things like travel and restaurants, which caused Amazon’s impressive revenue growth to fade. The situation only worsened at the start of this year, as the company confronted higher costs tied to inflation, the war in Ukraine and supply chain constraints.
Amazon CEO Andy Jassy, who succeeded founder Jeff Bezos at the helm in July 2021, admitted that the company hired too many workers and overbuilt its warehouse network as it raced to keep up with pandemic-era demand. It’s since paused or abandoned plans to open some new facilities, and its head count shrank in the second quarter.
Jassy has also embarked on a wide-ranging review of the company’s expenses, resulting in some programs being shuttered and a hiring freeze across its corporate workforce. Last month, Amazon began making what’s expected to be the largest corporate job cuts in its history, aiming to lay off as many as 10,000 employees.
Even Amazon’s cloud computing segment, typically a refuge for investors, recorded its weakest revenue growth to date in the third quarter.
Looking to 2023, several analysts have reduced their estimates, citing persistent macro headwinds and continued softness in online retail and cloud computing.
Evercore ISI analyst Mark Mahaney, in a Dec. 18 note, lowered his 2023 estimates for Amazon, predicting total retail sales growth for the year of 6%, down from 10%. He cut his forecast for annual Amazon Web Services revenue growth to 20% from 26%.
Still, Mahaney said he remains bullish on Amazon’s long-term prospects, calling it a “buffet buy” because of its assortment of businesses. He pointed to Amazon’s growing share in retail, cloud and advertising, its apparent insulation from risks such as ad privacy changes, and its continued investment in areas like groceries, health care and logistics.
“For those investors who utilize 2-3 year time horizons and are looking to take advantage of the recent dislocation in high quality ‘Net stocks, we highly recommend AMZN,” wrote Mahaney, who has an outperform rating on the stock. While recessionary concerns are real and earnings estimate will have to come down, “AMZN remains arguably the highest quality asset we cover in terms of Revenue and Profit outlooks,” Mahaney wrote.
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